After market close on October 22, Li-Ning Company (HK: 02331), a leading Chinese sportswear giant listed in Hong Kong, announced the establishment of a joint venture with HongShan.
According to the announcement, LN Co, a wholly-owned subsidiary of Li-Ning Company, has signed a subscription and shareholders agreement with Founder Co, HongShan Venture, and HongShan Motivation to establish a joint venture.
The total capital of the joint venture is HKD 200 million. LN Co, Founder Co, HongShan Venture, and HongShan Motivation will respectively contribute HKD 58 million, HKD 52 million, HKD 62.728 million, and HKD 27.272 million in cash, representing 29%, 26%, 31.36%, and 13.64% of the joint venture’s total capital.
Founder Co is wholly owned by Mr. Li Ning, the founder and chairman of Li-Ning Company. HongShan Venture and HongShan Motivation are both investment holding companies established and managed by HongShan. Li-Ning Company and Mr. Li Ning will jointly hold 55% of the joint venture, while HongShan will hold the remaining 45%.
The board of directors of the joint venture will consist of up to five members. LN Co will appoint two directors, Founder Co will appoint one, and HongShan will appoint two. The director nominated by Founder Co (initially Mr. Li Ning) will serve as the chairman of the board of the joint venture.
The purpose of the joint venture is to exclusively develop and operate the Li-Ning brand business overseas (including selling Li-Ning branded products). The parties aim to leverage their respective resources to help the joint venture establish independent operational capabilities, achieve long-term development of the Li-Ning brand overseas, and seek opportunities for a future listing.
Li-Ning Company emphasized that the company (excluding the joint venture) will continue to carry out the design, manufacturing, procurement, and marketing of Li-Ning branded products in the Chinese Mainland.
Regarding the reasons and benefits of forming the joint venture, Li-Ning Company stated that over the past decade, the company has adhered to its core strategy of “single brand, multi-category, multi-channel,” gaining a competitive advantage in the industry. While continuing to expand in the domestic market, the company now has the opportunity to gradually explore opportunities in other countries and regions. In recent years, the group has made relatively slow progress toward internationalization due to its focus on the domestic market.
The development of overseas markets, especially in the Belt and Road regions, is part of the company’s long-term strategy. However, overseas markets come with many uncertainties, including risks in economic, political, legal, credit, and social values and customs, all of which are significantly different from those in the Chinese Mainland. The business models in these markets also differ greatly.
The board understands that HongShan, since its establishment in 2005, has accumulated extensive investment experience and built a strong team of professional investors with deep industry insights and a cross-border investment network. HongShan can provide resources and services to portfolio companies, helping businesses engaged in cross-border operations access critical resources needed during their development, offering commercial empowerment, talent training, digital support, and media management services.
This joint venture leverages the influence of Mr. Li Ning, the founder, to guide the brand’s development and direction in overseas markets. Additionally, Li-Ning Company and Mr. Li Ning will jointly hold 55% of the joint venture, ensuring that the reputation of the Li-Ning brand is maintained and that sufficient influence is retained within the joint venture. On the other hand, bringing in HongShan allows the joint venture to benefit from HongShan’s cross-border resources and expertise in international operations, which will help accelerate the joint venture’s growth and efficiency. LN Co also has the right to acquire HongShan’s shares in the joint venture in the future, potentially allowing Li-Ning Company to take full control.
According to Li-Ning Company’s 2024 interim financial report, revenue increased by 2.3% year-on-year to RMB 14.345 billion. Revenue in the Chinese market grew by 2.7% year-on-year to RMB 14.097 billion, while overseas market revenue dropped by 14.4% year-on-year to RMB 248 million.
｜Source: Official Announcement
｜Image Source: Li-Ning Official Website
｜Editor: LeZhi
